Tribe sues to void casino compact

Pauma band's plans to expand have stalled

OVERVIEW

Background:
Seeking to expand its casino despite limits on tribal slot machines, the Pauma Band of Mission Indians agreed to a new compact with the state in 2004. The deal allowed unlimited slots but required a much higher payment to the state.

What's changing:
Pauma's expansion plans have been stalled, yet it pays the state $7.75 million a year, rather than $315,000 under the old compact. The tribe is asking a federal court to negate the 2004 deal.

North County's Pauma Indian band says it wants out of a casino deal it struck with Gov. Arnold Schwarzenegger five years ago because it hasn't been able to build a $300 million resort, yet must still pay millions of dollars to the state.

Pauma's financial partner, a Connecticut tribe with troubled casinos of its own, has backed out and prospects are dim for the resort once envisioned, the tribe said in a lawsuit filed against the state this month.

In addition, Pauma says a recent court order telling the state to issue more than 10,000 slot machine licenses to Indian tribes is proof that the governor tricked it into entering into a compact requiring onerous payments.

A Schwarzenegger spokesman denied that the governor has acted unfairly.

The tribe is asking a San Diego federal judge to declare its 2004 deal void and reinstate a 1999 deal it struck with the state, plus order the state to return the money the tribe has paid and give it additional slots.

Pauma's lawyers say the tribe will live up to agreements made with county officials to pay for $38 million in road improvements and deal with other issues if it completes its planned expansion.

The lawsuit against the state, the California Gambling Control Commission and Schwarzenegger makes Pauma the third North County tribe — after Rincon and San Pasqual — to go to court over slot machine licenses.

Federal law requires tribes wanting to operate Las Vegas-style casinos to make deals, or compacts, with states.

Pauma's lawsuit also comes after a string of court losses by the state over how many slot machines should be allowed in California and what the governor can do when negotiating with tribes.

The latest loss — which prompted Pauma's litigation — came late last month, when a federal judge in Sacramento ordered the gambling commission to issue 10,549 more slot licenses by Oct. 5.

The state has appealed that decision. Lawyers for the state say allowing thousands of additional slots without more compensation would be a disaster for the state and communities near casinos. They fear added traffic, noise and pollution, plus increased demands for water, fire, police and other services.

The issues are arising at a time when casinos nationwide are suffering as many gamblers make smaller bets in a down economy. That has coincided with a credit freeze that has put financing for casino expansions out of reach.

Things looked different in 1999, when then-Gov. Gray Davis negotiated take-it-or-leave-it compacts with about 60 tribes in the state, including Pauma, Rincon and San Pasqual.

The agreements limited each casino to no more than 2,000 slot machines, which they had to install relatively quickly.

The agreements also said there would be a statewide cap on slots. That number was not spelled out but was included in a complicated formula subject to interpretation.

Some tribes got 2,000 machines up and running quickly. Others — Pauma, Rincon and San Pasqual among them — put up relatively small temporary casinos and did not get the maximum 2,000 licenses.

Later, with the gambling business growing, many tribes sought additional slots.

State officials told them the statewide cap had been reached, and the only way to get more slots was to enter into new agreements, with new conditions, including revenue-sharing with the state and deals to help local officials with roads and other services.

Some tribes balked, saying they didn't want to negotiate for slot machine licenses they had a right to.

Other tribes negotiated, which is why, in San Diego County, Viejas and Pala have compacts signed in 2004 that allow them to operate an unlimited number of machines.

Each machine they operate requires a hefty payment to the state.

That appears to work for those tribes, both of which expanded their gambling floors after making that deal.

Other tribes made similar agreements in 2008, so the total number of slots in the state, as of June, tops 62,000.

Pauma signed such a deal as well, but its efforts at expansion have gone nowhere. Deals with Caesars Palace and Hard Rock fell apart in 2004 and 2005.

In October, Connecticut's Mashantucket Pequot tribe deemed the $300 million resort it planned to build in partnership with Pauma “not feasible,” according to the lawsuit filed this month.

The Pequots, who bill their Foxwoods casinos between New York and Boston as the largest in North America, have had financial difficulties and are looking to restructure $1.45 billion in debt.

Pauma and the Pequots have worked out their differences “amicably,” said Robert Rosette, Pauma's lawyer, but the future of Pauma's long-planned resort remains in doubt.

While Pauma has not capitalized on its 2004 compact, it still has to live up to its responsibilities.

Today, it operates 1,050 slot machines in a metal-framed tent off state Route 76, the same number as in 2004, but its annual payments to the state total $7.75 million, compared with the $315,000 it would owe under the 1999 deal.

The tribe's casino took in $44 million from gamblers in 2003, based on its statements in the lawsuit, from which it had to pay expenses before passing profits on to the tribe. Pauma says it has paid $26 million to the state since signing the 2004 compact.

Rather than negotiate for more slot machines, other tribes took different tacks.

Rincon and San Pasqual sued the state over how to figure the statewide cap, which only applies to tribes still working under the 1999 compact.

They also moved out of their temporary casinos. Rincon now owns a resort operated by Harrah's, and a boutique hotel is rising above the San Pasqual's Valley View Casino.

The Colusa, a Northern California tribe, also sued.

In litigation, the state argued that its cap, around 32,000, was correct. At different times, tribes have argued that the correct number was 50,000, 60,000 or 113,000.

Colusa's lawsuit was the first to result in a judgment. In August, a Sacramento federal judge said the number should be 42,700 and ordered the state to issue the additional licenses.

Based on that judgment, Pauma now says the state misled it by saying that no more slots were available.

“Pauma, as well as other tribes, are realizing the state has not been playing fair with them,” said Cheryl Williams, one of Pauma's lawyers.

Not so, said Jeff Maceda, a spokesman for Schwarzenegger.

“We disagree with the facts and the legal theories” of Pauma's lawsuit, Maceda said. “The 2004 amended compact was done in good faith. The governor stands by the terms of that amended compact.”